IRS Audits of High Net Worth Individuals (2018) – Offshore Money

IRS Audits of High Net Worth Individuals (2018) - Offshore Money (Golding & Golding)

IRS Audits of High Net Worth Individuals (2018) – Offshore Money (Golding & Golding)

With the IRS terminating OVDP on September 28. 2018, along with increased enforcement of IRS Offshore Penalties for failing to report foreign accounts, assets, investments, and income to the IRS (aka Offshore Compliance), high net-worth individuals are at a greater risk. 

According to the National Taxpayer Advocates annual summary, the IRS has been issuing more penalties against individuals with certain undisclosed foreign assets.

Moreover, since most high net-worth individuals have assets and money overseas/abroad, there is an increased money target for the IRS to issues Levies, Liens, and Seizures. (aka The IRS can levy your U.S. money to satisfy foreign money related IRS penalties/liabilities.)

High Net-Worth Clients Are At Greater Risk For Audit

Why? Because when high net-worth individuals either move or maintain foreign investments, the investments are usually more substantial.

Moreover, many of these individuals may have initially facilitated the cross-border transfer of wealth in order to stay below the IRS radar. Unfortunately, with the introduction and enforcement of FATCA, coupled by the IRS having created several new International Tax Enforcement Groups designed to crackdown on non-compliance with foreign and offshore reporting, the chance of being caught has skyrocketed.

Likelihood of Audit Increases with Net Worth/Income

As a person earns more income, and amasses assets both at home and abroad, they have a higher likelihood of being audited. Even though it is unfair, it is a reality for high net worth individuals. It is estimated that while a lower income person is at about a 1% risk of audit, a high net-worth person has a closer to 10% chance of audit. The likelihood is increased further when the the high net-worth individual has offshore assets.

That is because the IRS enforcement of offshore penalties is big business to the IRS.

The IRS Has New Tools

In years past, it was very difficult for the IRS to find your money. That is because the IRS simply did not have the tools necessary to locate offshore funds.

Fast forward to 2018 in the IRS has many tools and disposal — with the most potent tool being FATCA (Foreign Account Tax Compliance Act).

What is FATCA?

The IRS has entered into FATCA enforcement agreements (aka Intergovernmental Agreements or “IGA”)  with more than 110 different countries. Moreover, more than 300,000 Foreign Financial Institutions (FFIs) have agreed to report U.S. account holder information to the IRS, which may also include any income that was not reported.

As such, even though the foreign bank has not updated you regarding its disclosure of your information to the IRS, and/or the IRS has not yet contacted you, the IRS may already have received your foreigm account information.

Why is This Important?

That is because if you transfer undisclosed foreign account money to the United States, and you get caught, you may be at great risk for penalties.

The IRS has the ability to take some drastic action against your money. This can get even worse if you are audited after transferring the money and misrepresent the facts to the IRS.

Example of the Danger of Transferring Foreign Money 

For example, let’s say you have had an undisclosed for account with $500,000 in it. The bank never told you they were reporting your account information to the IRS. But, because the foreign bank knew you are us person they transferred your information along with thousands of other taxpayers to the IRS.

You transferred the $500,000 to a U.S. bank. In addition, the domestic bank updated the IRS letting them know $500,000 dollars hit your US account from an FFI.  Thereafter, the IRS audits you but does not reveal to you during the audit that they know about this information. During the audit you misrepresent the facts, because you are unaware the IRS has this information (aka reverse eggshell audit).

As a result, the IRS decides to issue willful penalties against you and the $500,000.

But it was Foreign Money?

So what. If you are considered a US person and the IRS has jurisdiction to go after any of your money no matter where it originated, or where it is maintained. Now, some countries may not be as cooperative in turning over the information to the IRS, but in accordance with FATCA hundreds of thousands of FFIs have agreed to play ball with the IRS.

What can the IRS Do To Your Money?

Here are a few common tactics the IRS will use:

IRS Levy

The IRS can issue a levy against your bank account with the intent to take all of the money sufficient to recoup the penalties against you (plus interest). You have the opportunity to dispute the Levy, but it is crucial that you respond notice of intent To levy in a timely manner.  Also, if the foreign money is already spent the IRS can still go after other money – in other words, the IRS is not limited to only trying to levy the actual foreign money that was transferred to the United States.

IRS Lien

In order to recoup penalties the irises issued against you, the IRS can also lien your property.  Typically, the IRS does not force the sale of the home, but it is a possibility, although very unlikely. In addition, as with the levy, the IRS is not limited to property that was purchased with the foreign money. The IRS can lien whatever property necessary to recoup the penalties due and owing.

IRS Seizure

A Seizure is a more complicated scenario, because with the seizure the IRS does not give sufficient notice or “pre-warning” — so that you do not have time to move the asset before the IRS “seizes it.” This method is typically intended for individuals who a laundering large amounts of money, and/or are criminals, or intending to go on the run.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.